Question

Ava invested $1750 into an RRSP that earned interest at 5% compounded semi-annually for eight years.

a) Find the balance of the account at the end of the period.

b) How much interest is earned?

c) What is the effective rate of interest?

Answer 1

a)
	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $1750*( 1+0.025)^16
	=1750*1.48451
	= $2597.88
b)	Interest earned = $2597.88- 1750
	=$847.88
c)	Effective rate of interest = (1+r/n)^n -1
	n= number of periods
	r = interest rate
	= (1+0.05/2) ^2 - 1
	=5.06%